1977 (5) TMI 17 - HC - Central Excise

Court excludes post-manufacturing costs from wholesale cash price for excise duty

The court upheld the decision granting relief to the manufacturers by ruling that post-manufacturing costs should be excluded from the wholesale cash ... Valuation - Post manufacturing expenses - Exclusion of - Wholesale cash price - Scope of - Old Section 4 - Scope of. - Connotation of. - Excise duty - Taxable event Issues Involved:1. Post-manufacturing costs in the context of Section 4 of the Central Excises and Salt Act, 1944.2. Interpretation of 'wholesale cash price' under Section 4(a) and 4(b) of the Act.3. Permissibility of deductions such as selling expenses, advertising expenses, and freight from the wholesale cash price.4. The constitutional validity of including post-manufacturing costs in the excise duty calculation.Detailed Analysis:1. Post-manufacturing costs in the context of Section 4 of the Central Excises and Salt Act, 1944:The core issue revolves around whether post-manufacturing costs should be included in the 'wholesale cash price' for the purpose of levying excise duty under Section 4 of the Act. The manufacturers argued that only manufacturing costs and profits should be included, excluding selling expenses, advertising expenses, and freight. The excise authorities, however, did not approve these deductions, leading to multiple writ petitions and appeals.2. Interpretation of 'wholesale cash price' under Section 4(a) and 4(b) of the Act:The court analyzed the interpretation of 'wholesale cash price' as clarified by the Supreme Court in A. K Roy v. Voltas Ltd. and Atic Industries v. Asst. Collector, Central Excise. It was established that the 'wholesale cash price' should include only the manufacturing costs and profits. Any post-manufacturing costs, such as selling expenses, advertising expenses, and freight, should be excluded. The court emphasized that excise duty is a tax on the manufacture or production of goods, not on post-manufacturing activities.3. Permissibility of deductions such as selling expenses, advertising expenses, and freight from the wholesale cash price:The court concluded that the manufacturers are entitled to exclude post-manufacturing costs from the price charged to the distributors. This conclusion was based on the principle that excise duty should only cover the manufacturing costs and profits. The court rejected the contention that Section 4(a) allowed for the inclusion of post-manufacturing costs, emphasizing that such costs are not related to the manufacturing process and should not be included in the excise duty calculation.4. The constitutional validity of including post-manufacturing costs in the excise duty calculation:The court referred to the constitutional entry 84 in List I of the Seventh Schedule, which allows for duties of excise on goods manufactured or produced in India. It was highlighted that the taxable event for excise duty is the manufacture or production of goods, and including post-manufacturing costs would violate this principle. The court applied the doctrine of 'Reading Down' to confine the language of Section 4 to manufacturing costs and profits only, ensuring that the excise duty remains a tax on manufacture or production.Conclusion:The court upheld the decision of the learned brother, Ramchandra Raju, J., allowing the writ petitions and granting relief to the manufacturers. It was ruled that post-manufacturing costs should be excluded from the wholesale cash price for excise duty purposes. The writ appeals were dismissed, and the writ petitions were allowed, directing the excise authorities to exclude any post-manufacturing costs from the wholesale cash price. The court's decision aligns with the views of various High Courts, emphasizing the principle that excise duty should only cover manufacturing costs and profits.